Pricing Psychology in Challenging Times · 2020-03-10 · Marketing Strategy Conference ... Our...

Pricing Psychology in Challenging Times

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Get a midyear strategy boost in this uncertain environment.We’ll address the issues through the lens of what they mean in periods of low and/or no demand, demand uncertainty, and recovery:• Navigating the Economic & Geopolitical Risks and

Opportunities Ahead• Optimizing the Ecosystem for Multi-Property RMs• Revenue Management Everywhere: Cross-industry RM

Learnings for Hoteliers• Driving Incremental Revenue from Premium Rooms• The Magic is in the Mix: A practical discussion on leveraging

transient demand, group forecasting, and group price optimization in order to maximize overall profitability

• Telling the Story Behind the Numbers• Manufacturing Consent: How to Get Your Owner to Say Yes• Leading and Developing RM Teams for Maximum Performance• Demystifying Artificial Intelligence: Readying the Industry for the

Rise of the Machine• And more!

Thank you to our ROC Preferred and Platinum Partners:

Source: 2020 STR, LLC / STR Global, Ltd. trading as "STR". © CoStar Realty Information, Inc. Any reprint, use or republication of all or a part of this presentation without the prior written approval of STR is strictly prohibited. Any such reproduction shall specifically credit STR as the source. This presentation is based on data collected by STR. The information in the presentation should not be construed as investment, tax, accounting or legal advice.

Pricing Psychology in Challenging Times

Carter Wilson | SVP, Consulting & Analytics

© 2020 STR. @CoStar Realty Information, Inc.

How Do Hotels Behave Under

Extreme Duress?


What We Know

U.S. ADR plummeted in 2009

Demand declines preceded ADR declines

No major markets were immune


What We’ve Heard

One hotel in the comp set lowered rates first…

…forcing the others in the comp set to follow


Evidence of “rogue” hotels

(initial rate‐slashing by a single property in a comp set)

IF TRUE, THEN:

Did other hotels follow?

What was the timing gap?

Did any hotels NOT drop rate?

What We Are Solving For


Disclaimer:There Are No Winners Here


Chicago, IL Market, All Hotels

Daily Data Analysis, 2008 ‐ 2010

Threshold ADR Drop of 10% = “Slashed”

Downturn Began September 2008

Methodology


What We Found


‐20%

‐18%

‐16%

‐14%

‐12%

‐10%

‐8%

‐6%

‐4%

‐2%

0%‐30

‐18 ‐6 6 18 30 42 54 66 78 90 102

114

126

138

150

162

174

186

198

210

222

234

246

258

270

282

294

306

318

330

ADR % Declin

e

Days After Rogue Dropped 10%

Sample Chicago Comp Set

1 2 3 4

Source: STR


26 days

57 days


‐25%

‐20%

‐15%

‐10%

‐5%

0%

5%‐30

‐18 ‐6 6 18 30 42 54 66 78 90 102

114

126

138

150

162

174

186

198

210

222

234

246

258

270

282

294

306

318

330

ADR % Declin

e


All Chicago Comp Sets

1 2 3 4

Rogue hotels and second movers suffered ~20% Total ADR Drop

Source: STR


27 days

130 days

Source: STR


3rd and 4th Hotels Were Willing to Sustain Double the Occupancy Loss

‐7.2% ‐7.8%‐12.1% ‐15.0%

‐21.1% ‐21.5%‐17.9%

‐15.8%

1st 2nd 3rd 4th

Occ % Change At Peak RevPAR Drop ADR % Change at Peak RevPAR Drop

Source: STR


By Class


‐25%

‐20%

‐15%

‐10%

‐5%

0%

5%‐30

‐18 ‐6 6 18 30 42 54 66 78 90 102

114

126

138

150

162

174

186

198

210

222

234

246

258

270

282

294

306

318

330

ADR % Declin

e


Economy & Midscale Comp Sets

1 2 3 4

93 days

224 days

Source: STR


‐20%

‐15%

‐10%

‐5%

0%

5%‐30

‐18 ‐6 6 18 30 42 54 66 78 90 102

114

126

138

150

162

174

186

198

210

222

234

246

258

270

282

294

306

318

330

ADR % Declin

e


Upper Midscale & Upscale Comp Sets

1 2 3 4

43 days

150 days

Source: STR


‐25%

‐20%

‐15%

‐10%

‐5%

0%‐30

‐18 ‐6 6 18 30 42 54 66 78 90 102

114

126

138

150

162

174

186

198

210

222

234

246

258

270

282

294

306

318

330

ADR % Declin

e


Upper Upscale & Luxury Comp Sets

1 2 3 4

24 days

100 days

Source: STR


The Higher the Chain Scale, the Shorter the Timing Gap


The Closer to Downtown, The Shorter the Timing Gap


Did Any Hotels NOT Drop ADR?


Hotels That Didn’t Slash ADR Lost More Demand…

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

15%

Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10

Hotels With ADR Drop >10%

Hotels With ADR Drop <10%

Dem

and % Cha

nge

Source: STR


…But Experienced Less Extreme RevPAR Declines

‐30%

‐25%

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10

Hotels With ADR Drop >10%

Hotels With ADR Drop <10%

RevPAR

% Cha

nge

Source: STR


Chicago Market Summary• It took an average 239 days of demand decline for first hotel to

lose 10% ADR.• The second property to drop ADR lowered about a month later,

and the final property about four months later.• Properties with the lowest ADR heading into the downturn

tended to cut ADR first.• Upper Upscale/Luxury sets dropped ADR faster than other chain

scales.


Downturn Profitability Analysis


Results

• Nearly every hotel lost significant RevPAR in 2009• Full‐service hotels that sacrificed occupancy and held

rate had profit declines of 24%• Full‐service hotels that sacrificed rate in favor of

occupancy had profit declines of 31%• Comparable results for limited‐service hotels

Source: STR. 2020 © CoStar Realty Information, Inc.

-3.9%

-9.9%-10%

-8%

-6%

-4%

-2%

0%

0 6 12 18 24 30 36 42 48 54

09/01 ‐ 09/04 (9/11) 09/08 ‐ 05/13 (Lehman Bros)

ADR Rebound After External Shock Takes Time Total U.S., 12MMA , Monthly ADR % Change, Indexed to Event


Overall Key Findings• Chicago overall patterns consistent with other markets we

studied (Upper Up/Lux)• Most hotels are unable to hold rate steady when competitors

drop. • Properties sacrificing rate for occupancy in 2009 had more severe

profit declines• There are no winners – all hotels had significant losses. Operators

need to analyze impact of both ADR and occupancy on their properties. Create stress test to prepare for next downtown.

Source: 2020 STR, LLC / STR Global, Ltd. trading as "STR". © CoStar Realty Information, Inc. Any reprint, use or republication of all or a part of this presentation without the prior written approval of STR is strictly prohibited. Any such reproduction shall specifically credit STR as the source. This presentation is based on data collected by STR. The information in the presentation should not be construed as investment, tax, accounting or legal advice.

QuestionsCarter WilsonSVP, Consulting & Analytics

ss

Get a midyear strategy boost in this uncertain environment.We’ll address the issues through the lens of what they mean in periods of low and/or no demand, demand uncertainty, and recovery:• Navigating the Economic & Geopolitical Risks and

Opportunities Ahead• Optimizing the Ecosystem for Multi-Property RMs• Revenue Management Everywhere: Cross-industry RM

Learnings for Hoteliers• Driving Incremental Revenue from Premium Rooms• The Magic is in the Mix: A practical discussion on leveraging

transient demand, group forecasting, and group price optimization in order to maximize overall profitability

• Telling the Story Behind the Numbers• Manufacturing Consent: How to Get Your Owner to Say Yes• Leading and Developing RM Teams for Maximum Performance• Demystifying Artificial Intelligence: Readying the Industry for the

Rise of the Machine• And more!

Thank you to our ROC Preferred and Platinum Partners:

Pricing Psychology in Challenging Times · 2020-03-10 · Marketing Strategy Conference ... Our...

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